Dampened global sentiment has weighed on the USD throughout the first trading day of the week, with the USD-index ending the European session lower by around 0.9%. Focus this week is firmly on the FOMC rate decision meeting on Wednesday, with analysts at Nordea suggesting that if the Fed intend to raise rates in September, they may decide to signal to the market at this week’s meeting. However, today’s weakness in Chinese equities saw the Shanghai Composite have its biggest one day fall since 2007, falling by 8.5%, thereby heightening fears of a slowdown in China and raising questions as to whether the Fed will be able to raise rates any time soon. USD shrugged off better than expected US Durable Goods Orders (3.40% vs. Exp. 3.20%), with the greenback weakened further through EUR strength.
This came as EUR/USD broke above the July 15th high at 1.1036, benefitting from better than expected German IFO Business Climate (108.0 vs. Exp. 107.2). Elsewhere, JPY strengthened amid a risk-off tone in the region as Asian indices declined to see USD/JPY trade around the 123.00 handle, a level that has not been broken since July 23rd.
Looking ahead, tomorrow sees the advanced reading of UK Q2 GDP, with Q2 expected to outperform Q1 (Exp. 0.7%), while a strong reading could heighten calls for a rate hike around the turn of the year given the recent relatively hawkish rhetoric from the BoE. However it is worth noting the dovish rhetoric from Haldane over the weekend, suggesting there is `no rush` to raise rates. Elsewhere tomorrow also sees US composite and Services PMI scheduled at 1445BST/0845CDT